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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (12896)	7/23/1998 7:13:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 42787

I want to share with you and others on the thread about a stupid mistake that I have made today in trading covered calls on Informix. This will show that I do not think it is everyone but me who will make mistakes. My original plan, which I should of kept with, was to write covered calls after the earnings report. As a rule I do not hold any position through an earnings report. I was considering making an exception to this if the premium was high enough on a just out-of-the-money option. This was not the case, so I stayed with my original plan. I considered the exception since I realized I was prepared to lose the stock by having my options exersized. Yesterday I got out my new handy dandy real-time quote service and examined the stock for any clues on the day of the earnings announcement. I saw an initial sell off of nervous holders of the stock. I thought this was very odd to happen on the day of the announcement. This is because I would think anyone who was going to sell would of sold before this date and the rest would hold until the news came out that day. So the first incident occured when I broke my rules and wrote my calls based on this intraday information which I have never followed this close to a earnings report before for this stock. Hmm...what did I say earlier on this thread about making buy and sell decisions based on intraday data instead of keeping with my approach that is based on interday data? The real-time quote service with graphics is quite impressive, and perhaps a bit too attractive on first use by me. Later in the day when the earnings news came out, the stock leaped up through two intraday gaps. I thought to myself "oh oh!". Then the news came out that Informix beat consensus estimates by 4 cents per share. This by itself would of been no that big of a deal to me, but then listening to the others on the Informix thread together with this news and the price action I saw in the stock persuaded me to cover my short call position. The reason it should not of been a big deal is that Informix is not followed by traders who make earnings plays due to its turnaround status. It is not a high tech with a series of earnings surprises as a follow through to a good record of earnings growth. Also I knew there would be others waiting to sell on this news. I had anticipated this possibility. I normally would of waited to watch the tape action through the next day and make my decision at the close of the day unless important resistances were broken which would of prompted further consideration. Today I looked at the first 20 minutes of tick data. I saw net buying, but observed it to be not as strong as I would of thought. Instead of waiting at least 1/2 an hour to see what the "true" trend of a stock will be, I made a decision to cover at a small loss. My "feelings" obviously were getting the best of me. So once again here I am being thrown around be intraday data when I really knew better, both in how I should not let myself do this, and also I should know what the tape was actually telling me. Unfortunately, my personal sentiment biased my view and what I saw on the tape. This was the first time I have written calls the day of the earnings announcement. That break in discapline set me up for further lapses as I find normally happens when I do something silly like this. Lapses in discapline usually causes several mistakes to be made in a row because objectivity is lost. So I covered just to find the "true" trend of Informix at about 1/2 of an hour after trading started which was to move down under a net selling by shareholders. Hmm...interesting. Fortunately there were enough speculators playing the earnings report to offset allot of the selling. But this may not be the case tomarrow since today provided them with dismal performance. So I have worked out another plan that I will keep to this time, and use the tape to time my CC write, and NOT use it to decide if I am going to write CCs or not tomarrow. I have used the tape many times before, but in the past I came to using the tool with an objective frame of mind that would not permit me to react. After all, I am not a day trader. I am a position trader using the tape to measure the performance of the stock intraday and to fine tune my entries and exits. My decisions related to choosing what day to enter and exit always has been made on end of day data. Talk about stupid mistakes. I should listen carefully to my own words. But boy, that real-time quote service is very nice! Lacking discapline, my use of it has facilitated a loss of several hundred dollars. I must always stick to my plan! I wonder how much tatoos cost? Bob Graham